On the Application of Value at Risk and Performance Evaluation of Mutual Funds
Date Issued
2007
Date
2007
Author(s)
Lin, Ching-Yao
DOI
zh-TW
Abstract
This study introduces the concept of Value at Risk (VaR) into fund performance evaluation tool. It stresses that the calculation of rate of return for underlying assets is not based on target volatility but on confidential level setting. The appropriate VAR calculation method is determined only after sample distribution meets the method’s assumption. In other words, if samples fail to meet the distribution assumptions, and trial and error is still unable to identify the best distribution with degree of freedom and sample size, such estimation method will not be adopted.
In the mutual fund evaluation, Sharpe Ratio will not only be used under the traditional model. The standard deviation will be replaced by risk, while the riskfree rate replaces the market rate. In this way, a new Sharpe Ratio is calculated. In addition, the research will divide the underlying assets into three groups: regional versus individual country type, global type and Taiwan type. The mutual funds are evaluated and ranked, using the Spearman coefficient , different methods are compared to see if they will cause changes on ranking.
This study estimates the VaR model with historical simulation, variance–covariance and mixed normal simulation. After Back test, it is found that the historical simulation is more accurate in short-term period estimation than in long-term period estimation. The variance-covariance method and mixed normal simulation also use the standard deviation approach and GARCH (1,1). The results from both variance-covariance method and mixed normal simulation showed that the standard deviation method in estimating the value of risk is more accurate than GARCH (1,1). Therefore, the use of variance-covariance method or mixed simulation does not affect the value of risk. Instead, finding a method that precisely describes samples is more important in the calculation of volatility. I replaced standard deviation with risk ratio to rank the funds, investigating the influences of different Sharpe estimation methods on rankings. The results showed that variance-covariance method and mixed simulation method do not cause major changes in the rankings, but standard deviation method &GARCH and Sharpe1&Sharpe2 cause more changes in the rankings.
Subjects
風險值
開放型基金
夏普指標
歷史模擬法
變異數—共變異數
VaR
Mutual Fund
Sharpe Ratio
Historical Simulation Method
Variance-Covariance
Type
thesis
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